Why US Earnings Season Is Priced For Record Volatility in S&P 500 Stocks

For context, the implied move for the average S&P 500 company on earnings day is currently around +/-5%. If realised, a +/-4.9% one-day move on average would make this reporting quarter the most volatile earnings season on record. 

Company Earnings Guidance the Primary Market Catalyst 

At its core, the market is focused less on backward-looking results and far more on the future. The key question is whether the reporting company has sufficient visibility and confidence to raise projections for future earnings, sales, or margins. 

Guidance – or the absence of it – is what the market, and increasingly algorithmic trading systems, initially key off. This is the primary driver of intraday volatility on earnings day. 

How Stocks Typically React to Earnings Guidance 

In the last reporting quarter (Q3), around 41% of S&P 500 companies raised their earnings projections. On average, those companies recorded gains of +1.5% on the day of the announcement. 

By contrast, companies that left earnings estimates unchanged saw an average move of -0.4%, while companies that lowered forward guidance recorded an average -3.7% move on the day.

High Growth Expectations Leave Little Room for Investor Disappointment 

With analysts expecting S&P 500 companies to deliver an impressive 13.6% EPS growth ($305) this year, the bar is set high. The market needs companies to meet expectations and, ideally, upgrade guidance on earnings, sales, and margins.

After a strong run in equities and with valuations stretched, the market has become far less tolerant of disappointment. Investors are quick to reward companies that upgrade earnings expectations and speak positively about operating conditions, while showing little compassion for those that fail to deliver. 

Positioning and Crowding Amplify Earnings-Day Moves 

The elevated implied move priced into single-stock options is also a reflection of positioning and crowding, as well as share-price performance heading into the earnings release. 

Stocks that are heavily owned, popular with investors, and have rallied strongly into earnings tend to experience the largest absolute moves when expectations are not met. 

Key Takeaways for Equity CFD Traders 

Risk management is always critical, but it becomes even more important around earnings. Knowing the reporting date is the first and most basic consideration. If you are long a stock that has had a strong run into earnings and is well loved by the market, you are effectively relying on the company beating consensus expectations. Even then, the key questions become by how much and on which metrics. 

Why the Market Reaction Is Often Not About the Headline Numbers 

It is essential to focus on the aspects of the earnings report that truly matter to the market, even though these can be difficult to identify in advance.

For example, in the prior earnings quarter, Oracle beat analysts’ Q3 FY26 EPS estimates by a substantial 38%, while Q3 sales were in line. However, it was the sharp increase in planned capex and concerns around the future cost of funding its data-centre build-out that caused the share price to close -10.8% on the day. 

Trading Around Earnings: Timing Matters

 Often, the easier money is made trading a stock into an earnings announcement, or alternatively after the event, once the market has had time to properly assess whether the investment case has improved or deteriorated. That is typically when trends emerge and price persistence develops. 

Final Thought: Managing Risk in Earnings Season 

The options market is clearly signalling expectations for large one-day moves in US stocks on earnings day. Traders should carefully consider their approach to risk management and ensure appropriate position sizing if holding positions over earnings announcements. It is also worth monitoring whether any post-earnings reaction or trend develops through the Asian session, where Pepperstone's US 24-hour equity CFDs provide the ability to manage exposure outside US market hours.

Good luck to all.